Oregon climate policy could halt industrial growth

By Oregon Business and Industry,

The Department of Environmental Quality (DEQ) held its final Climate Protection Program (CPP) Regulatory Advisory Committee meeting on June 25, presenting the proposed rule and budget impact statement. The proposed rule attempts to address the compliance challenges unique to energy-intensive, trade-exposed (EITE) manufacturers but actually does little to address the program’s exorbitant compliance costs. As a result, it fails to address the threat the CPP poses to the competitiveness of Oregon manufacturers while providing no assurance that measurable greenhouse gas reductions will occur despite the massive fees paid under the program.

EITEs are particularly vulnerable to regulations that increase costs in ways that erode their competitiveness in regional, national, or global markets. Faced with such costs, they may be forced to cease operations or relocate production to other states or nations. Such disruptions provide no net environmental benefit, as production and associated emissions simply move elsewhere. At the same time, such a move would deprive Oregon of good-paying jobs and other economic benefits.

The proposed rule proposes to allow about 20 companies to be directly regulated under the emissions cap for natural gas combustion emissions and would be subject to slightly slower emissions reductions. However, the proposal retains many provisions whose excessive compliance costs would erode the economic viability, at least in Oregon, of EITE companies.

Less than two years ago, the Oregon legislature agreed, through Senate Bill 4, to invest hundreds of millions of dollars in the state’s semiconductor industry. Ironically, the state now makes it nearly impossible for chipmakers to grow. This disconnect speaks to the need for better policy coordination and a coherent statewide economic development strategy.

The draft regulation includes some notable additional elements. It:

• Reorganizes compliance instruments to reduce the cap for transportation fuel suppliers, making compliance more difficult for this sector;
• Does not provide any cost containment measures for non-EITE natural gas consumers, such as residential and commercial customers such as schools and hospitals;
• Applies only to the state’s 20 largest EITEs, leaving dozens of manufacturers without options to reduce compliance costs;
• Provides free compliance instruments for the first three-year compliance period equivalent to a company’s average emissions from 2017 to 2019. This will create an immediate deficit of compliance instruments for some companies that have already increased production;
• Prohibits the growth of the manufacturing sector;
• Provides a small reserve of instruments for new entrants to the market;
• Does not allow the use of offsets;
• Maintains the purchase of costly community climate investment credits as the only method to comply with the program if a company cannot reduce its emissions at the specified rate.

OBI is working with regulated members and other stakeholders to draft comments that will be submitted to DEQ before the proposed rule is published later this summer.

The OBI continues to advocate for a legislative solution through a market-based program that could be linked to Washington and California’s cap-and-trade programs and result in a more reasonable and achievable climate policy.